Investors are watching fiscal cliff negotiations closely as 2012 draws to a close. Both the Dow and the S&P 500 had healthy gains this past year, but the year could end on a down note if the budget stalemate in Washington isn't resolved. All Things Considered host Robert Siegel talks with NPR business reporter Jim Zarroli about what we might expect in 2013.

ROBERT SIEGEL, HOST:

The Dow Industrials gained 166 points today. That's about 1.3 percent. Before today, the stock market had been steadily drifting lower, losing ground for five straight days. Joining us now to talk about the market is NPR's Jim Zarroli. And, Jim, of course, we don't know how today's talks in Washington will ultimately turn out, but it does appear that before the markets close today news of a deal was moving the markets. True?

JIM ZARROLI, BYLINE: Yeah. Stock prices were kind of up and down throughout much of the day. And then in the afternoon, it became apparent that, you know, some kind of deal was in the works, and you saw prices go up quite a bit. You know, I have to say that, you know, given how serious this issue potentially is to the economy, the movements weren't enormous, and that's really been the case for weeks. I mean, you've seen movement in the markets but, you know, this is something that could push the U.S. economy into a recession. So it's really surprising that prices haven't fallen more.

SIEGEL: Why do you think that is? Why haven't investors more been worried about what's happening in Washington until now?

ZARROLI: I think it's possible a lot of investors just have seen this as kind of political theater. I mean they thought that in the long run that Congress and the White House would come to some kind of agreement. And, you know, this hasn't been a really volatile year in general. There's been this kind of disconnect between Wall Street and Washington. You didn't see big swings, for instance, you know, after the election. You didn't see it after the Supreme Court ruling on health care. You know, whatever movements there have been have been pretty gradual.

SIEGEL: How would you say 2012 turned out to be as a year in the financial markets?

ZARROLI: It was a good year, especially for some parts of the market. I mean, the Dow Jones Industrial Average was up 7.3 percent. The broader stock market did even better. Bond market was pretty strong. What makes this really remarkable is, you know, where - when you consider where we were a year ago, at the start of 2012 everybody was worried that China was going to slow down dramatically. People were worried about the euro collapsing. None of that happened. And the financial markets actually ended up doing pretty well.

SIEGEL: Does this mean that we're seeing investors coming back into the market?

ZARROLI: Well, some of them. I mean, you know, the stock market did well. The Standard & Poor's 500 index was up more than 13 percent. But a lot of that is being driven by the big investors, the hedge funds, the mutual funds. You know, they had to invest their money. They figured the stock market was a good place to invest, and they were right. A lot of small investors, though, they're still staying away. You know, they were very badly burned over the past decade, so they stopped putting their money into the markets, into stocks and, you know, we don't see any signs that they're coming back.

SIEGEL: Well, what was the best place to put your money if you are an investor? Was it the stock market?

ZARROLI: Well, surprisingly, you know, some of the best places to put your money were some of the places that you might have considered the riskiest a year ago. For instance, you know, corporate junk bonds did very well. They were up, I think I saw about 15 percent according to one measure. Housing market has really turned around, so some of the housing sector stocks have done well. Here's a real surprise: Some of the stock markets in Europe, in countries like, you know, Portugal and Ireland and Greece did well.

Now, that's mainly because they were doing so badly. I mean, they had been beaten down so much. At one point, I think the valuation of the entire Greek stock market was lower than that of Costco, which is sort of ridiculous when you think about it. So, you know, I think the Greek stock market had nowhere to go but up, and in the end, it went up.

SIEGEL: Well, thanks for those reflections on the year in the market just ending. Jim Zarroli, thanks.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.